Ballmer’s exit: New questions about Microsoft’s explanation

To fully grasp the significance of Steve Ballmer’s retirement announcement, first go back to 2008, when the Microsoft CEO told an audience in Washington, D.C., that he planned to remain at the company for another nine or 10 years, until his last kid went to college. In other words, he planned to retire in 2017 or 2018.

Then fast-forward to last month, when Ballmer unveiled a massive restructuring that reshaped the company around a new vision, focused on devices and services, with himself and a core executive team at the center of a new “One Microsoft.”

Something here doesn’t add up. I spent much of the weekend talking with current and former Microsoft executives and employees, and as the shock over Ballmer’s announcement starts to wear off, more of them are starting to question the timing of his decision, and the real motivation for his departure.

One theory is that ValueAct Capital’s push for reform played a role in Ballmer’s decision. The activist investment firm has been accumulating Microsoft shares, and pushing for a board seat, raising the possibility of a proxy battle that could undermine Ballmer’s position as the company’s leader. Ballmer, for the record, told the Seattle Times in an interview that his retirement “has nothing to do with that.”

Another theory involves Nokia. Microsoft has reportedly been in on-again, off-again acquisition talks with its smartphone partner, and Ballmer’s departure could clear the way for such a deal, potentially with Nokia CEO Stephen Elop taking command of the combined company.

What role did Bill Gates play? Kara Swisher of AllThingsD, also suggesting that there’s more to this than Microsoft is saying, points to evidence including the lukewarm statement from Gates in the official Microsoft announcement, and Ballmer’s lack of acknowledgement of the Microsoft chairman (and his longtime friend) in his memo to employees.

The biggest head-scratcher is the timing of the announcement in the context of Microsoft’s massive reorg. Ballmer is often compared to a football coach. To extend the analogy to this situation, he spent months assembling a new team, came up with a radical new gameplan, and then abruptly announced his plan to walk off the field.

Ballmer wrote in his memo last week, “My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company.” He added that Microsoft needs someone “who will be here longer term for this new direction.” Based on his previous comments, signaling that he planned to stay until at least 2017, that statement implies that Microsoft’s transformation will take many years.

But it’s tough to understand why Ballmer would come up with a new plan and team, and then voluntarily hand it over to someone else to implement. In an ideal world, any new CEO would have the prerogative to evaluate the corporate structure and change it as he or she sees fit. That seems to make the entire reorg meaningless, or at least temporary.

Or if the board insists the new structure and leadership remain in place, it will severely limit the authority and flexibility of the new CEO in a way that would reduce the pool of quality candidates. No one worth their salt would try to lead a company of Microsoft’s size with their hands tied.

Software developer Guy English has an interesting post on this topic, titled Ballmer’s Straight Jacket. “Microsoft is currently searching for a new CEO who’ll fit the straight jacket Steve Ballmer has left behind,” he writes. “If you’re going to change leadership I suggest it’s a good idea to let the new leader figure out how to best run things. You don’t see outgoing national leaders being able to appoint the incoming cabinet. That looks like what Ballmer has just done.”

One Microsoft person close to the process disagrees with this whole line of reasoning, telling me in an email exchange over the weekend that there’s no debate among the board or senior management about the strategy, that everyone is behind it. To delay the new strategy in the fast-moving tech industry would be irresponsible, this person says.

There’s no doubt that the company can’t afford to fall further behind in the fast-moving tech industry. But the timing of Ballmer’s decision itself seems to put the company in limbo. Will people at Microsoft really embrace and implement the new structure and leadership with a CEO transition pending?

Ballmer is right that there’s never a perfect time for a decision like this. But it’s hard to escape the conclusion that the timing of his decision is odd.

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Comments

Gregg Kiser suggested on Friday that it was the $900M Surface RT that drove this. The point about ValueAct is a good one.

Personally, I suspect it’s all of that plus aQuantive, KIN, Vista and the flat stock price. I think combined that created a lot of weight.

But why now and not after aQuantive? My own theory comes back to Surface RT. At this point it’s pretty clear that Microsoft is locked out of tablets. The world has just about settled on iOS and Android (mirroring Mac OS and Windows). In phones there’s still enough of a presence to not write them off. But I think in tablets it’s clear Windows is locked out.

And let me clarify that I don’t consider Surface Pro a true tablet: I look at it as a laptop with tablet characteristics….much like the old Tablet PC I had ages ago.

For the first time in a very long time, Microsoft is looking at a future where they have no presence in one of the major client device markets. I think that’s a major enough strategic problem to finally move Gates to take action.

guest

aQuantive, KIN, Vista, and the flat stock are all old news. The only new news is the big earnings miss, the Surface write-down, and the presence of ValueAct this year versus previous. Personally, I think the latter is far more compelling to explain Ballmer’s departure than any of the explanations they’ve provided. A proxy fight could have been very ugly for MS. And they may have forfeited more than just a CEO. The entire board could have found itself voted out.

What you consider SurfacePro is sort of immaterial. It is a tablet. And if Intel can increase battery life with their new chips there’s reason to think a decent segment of users, particularly in enterprises, will want a W8-based tablet that can do both creation and consumption equally well. WinRT’s future is looking much more tenuous at this point. But it’s a mistake to assume existing market players can’t change. If that was the case Apple should never have bothered with iPhone. But certainly MS finds itself being a minor player in both phones and tablets versus its historical 90% share in PC, which is a real problem.

http://www.christopherbudd.com Christopher Budd

The proxy fight and the Surface RT situation certainly aren’t mutually exclusive. And I do think the truth is a witches brew of reasons.

As far as the SurfacePro though, the iPhone created a new market effectively, it didn’t try to wedge into an established one. When we look at attempts to bring a third operating system to the desktop/laptop arena over the years no one had real success there.

And how I consider Surface Pro is material since I’m a potential customer. And my consideration of it reflects my point of view as informed by my discussions with friends and colleagues. When they talk about “tablets” they don’t count the Surface Pro in there. It’s too expensive and too laptop-like. When I’ve heard the Surface Pro discussed it’s been as a possible laptop/ultrabook with tablety characteristics.

Guest

I didn’t say they were exclusive. It was like dealing ValueAct another Ace. But the cards they had were already sufficient: THIRTEEN YEARS of stock declines.

I disagree the iPhone created a new market. It certainly redefined expectations and furthered adoption. But it is/was a smartphone and took over that existing market, which was already showing major share gains year over year. Yes, a 3rd OS choice in laptops and desktops has proved difficult. But I’m sure one of the Linux fanbois who troll this site will be happy to tell us how it’s doing well or how Chrome is going to change everything. So maybe it’s a question of needing a longer timeframe. Regardless, there are lots of other examples in tech and elsewhere where we see three viable competitors. And of course you’re assuming Android and Apple remain #1 and #2. That certainly looks likely right now, but it’s not guaranteed. Lots of things could potentially happen to either. But if not, as I said, it’s a major problem for MS.

Your perception of a product matters as a potential consumer, but it doesn’t entitle you to define a Mercedes as not being a car just because you think it’s too expensive or offers too many features that aren’t important to you. It is a car. Unequivocally. Similarly, Surface Pro is tablet. It may not be the tablet for you and many others, which is a big problem for MS. But it’s not surprising that after three years of iPads and Android tablets, a lot of people have been conditioned on what a tablet should or shouldn’t offer. People did the same for smartphones prior to iPhone. Perceptions can be changed. MS’s challenge is to offer the product and education to do so. And of course prices will have to be lower than SurfacePro in order to gain significant share. Hence the reason I referred to Intel’s new chips. That said, it’s not at all clear that MS, or MS+Intel+OEMs can play in the price points being driven by Amazon and Google. In fact there’s reason to think they can’t. So again they may have to chose a smaller but profitable niche. Enterprise seems like an obvious candidate. And of course MS and others will still see royalty revenue from Android sales across the rest. The way prices are going, that might even be more lucrative than the margins Amazon and Google will end up with there.

I’m not saying MS is in a good position currently. They’re not. But it’s a little premature to call the battle over.

http://www.christopherbudd.com Christopher Budd

I think it will just be a question of how it all plays out. We clearly have some different points of view on things.

I could certainly be wrong. And frankly, I’d rather be wrong. It’s not good for Microsoft to be locked out for anyone. Diversity is always good for customers. And it would be better for the regional economy for them to succeed.

clibou

The shift from PC era to Ambient era computing does need a longer term leader.

Bob

The fact that so many don’t believe Ballmer or the board shows how much credibility both have lost over the past decade. Misrepresenting facts repeatedly will do that, I guess. Frankly, the company deserves better. Getting rid of Ballmer is only half of that equation, and not necessarily the most important half. Ultimately we’ll find out what really happened here, as we always do. And likely it won’t support the company’s spin, as it most often doesn’t.